New Jersey Real Estate

By Troy McMullen

From The Wall Street Journal Online

With once-hot condominium markets across the country in sharp decline and many real-estate professionals predicting a further weakening, some developers are facing more than a glut of unsold inventory. Angry condo buyers from Boca Raton, Fla., to San Diego are taking them to court, alleging everything from breach of contract to fraud.

Some of the lawsuits claim that the amenities featured in glossy marketing brochures and model apartments never made it into the final product. Others involve much-hyped projects that went bust, leaving hundreds of buyers with contracts for condos that will never materialize.

In Florida, 2,557 individual complaints against developers were filed in fiscal year 2006, ended June 30, up from 1,825 two years ago, according to the state's Department of Business and Professional Regulation. In Colorado, at least 18 lawsuits have been filed by attorneys representing condominium-owners' associations in the last two years. Most involve complaints of shoddy construction or faulty repairs in recently completed developments, according to research compiled by Denver property appraiser Steven Miller. And in Las Vegas, the Clark County District Court is hearing cases against more than a dozen developers. That includes one suit brought by more than 50 plaintiffs against the builders of Icon Las Vegas, a two-tower project that was scrapped in January, according to Will Kemp, the attorney representing the plaintiffs.

Legal professionals say that the increase in litigation isn't surprising, given the furious pace of new construction in the past few years, and that some suits may rely on dubious legal strategies that have little chance of prevailing in court. Several states, including California, Colorado and Nevada, have tightened construction-defect laws to help stem the tide. The laws, a result of intense lobbying by the building industry, make it tougher for homeowners to sue or require mediators to settle disputes out of court.

"These types of laws help weed out many complaints that, frankly, never should have ended up in court in the first place," says Chicago attorney Howard Swibel, president of the National Conference of Commissioners on Uniform State Laws, a nonpartisan advisory group.

Still, industry analysts say, the increase in litigation is shedding light on the problems facing many people who got caught up in the rush to buy during the recent run-up, particularly in the condo market, where record numbers purchased properties sight unseen.

Size Matters

In California, developer Crescent Heights is being sued by condo owners in three of its projects, including the Metropolitan, a recently completed 342-unit development in San Francisco's Rincon Hill district. That lawsuit, filed in state Superior Court in August, claims the developer misrepresented the size of the units and failed to repair various construction defects after the building was completed.

Ben Bedi, who filed the suit, says he put down a 5% deposit on a $1.7 million condo during preconstruction in 2004. He says floor plans, marketing materials and a partial model apartment led him to believe that his two-bedroom unit would look like a penthouse, with huge windows, hardwood floors, two large balconies and a view of San Francisco Bay.

In his complaint, the 41-year-old attorney alleges that when he moved in at the end of 2004, he found defects such as screen doors installed backwards and water pipes that leaked. The complaint also alleges that the developer misrepresented the size of the apartment. Mr. Bedi says an architect he hired found it to be about 220 square feet smaller than the approximately 1,684 square feet advertised in the offering plan.

"I paid a lot of money for what I thought would be a brand-new home," Mr. Bedi says. Instead, he says, he has spent thousands of dollars just on repairs and other labor.

Patrick E. Breen, an attorney representing the Metropolitan's developer, denies the claims in the lawsuit and says the square-footage figures, presented in purchasing agreements as approximates, were accurate. "We hired the proper outside engineers to measure units and are confident that our sales and square-footage representations were handled appropriately," he says. Mr. Breen also says that the developer looked at Mr. Bedi's other complaints and found them to be invalid. For example, the screen doors cited were installed correctly, Mr. Breen says.

Homeowners have long taken developers to court for leaky faucets and faulty construction. But real-estate professionals attribute this latest wave of legal actions to the surge in preconstruction purchases during the recent market surge. In Las Vegas, one hub of the condo boom, about 4,500 condos and townhouses, priced at $500,000 and above, were sold in preconstruction last year -- a fourfold increase over 2004, according to Hanley Wood Market Intelligence, a research firm in Costa Mesa, Calif.

Another new wrinkle is the number of high-end buildings currently involved in court actions -- a rarity in the past, industry analysts say.

"You've got buyers out there who paid one and two million dollars or more for a condominium and are now dealing with everyday construction defects," says Ross Feinberg, a California attorney who specializes in construction litigation.

Suits Up, Sales Down

The rise in litigation comes as the market for condos is slumping. Nationwide, sales of existing condominiums and cooperatives fell 16% in September compared with the same period a year earlier, one of the sharpest year-on-year declines in years, according to the National Association of Realtors.

The declines in some areas have been even more precipitous. Sales of existing condominiums in Miami fell 45% in September compared with the same 2005 period, the Florida Association of Realtors says. In San Diego, year-on-year sales of existing condos were down 41% in September, according to La Jolla, Calif.-based real-estate research firm DataQuick. A similar story is unfolding in Las Vegas, where condo and townhouse sales were off 45% in October compared with a year earlier, according to the Greater Las Vegas Association of Realtors.

"Right now, the condo market is a disaster," says Lewis Goodkin, a Miami economist and real-estate analyst. The crash in some areas was inevitable, he adds. "These markets were essentially propped up by speculators." Indeed, investors accounted for as much as 80% of the preconstruction purchases of luxury condos in Miami, according to a 2004 study by Esslinger-Wooten-Maxwell Realtors.

Dried-up demand and rising construction costs have forced many developers to stall or cancel projects, particularly in formerly hot markets that are now overbuilt. In Las Vegas, an estimated 6,900 condo units have been suspended in the sales process, while another 1,900 have been canceled officially, according to real-estate research firm Applied Analysis. Among those scrapped were projects co-developed by George Clooney and Ivana Trump.

Cocktails, Then Cancellations

As the number of scrapped projects increases, so too do the complaints. In Florida, many condo suits involve severely delayed, cancelled or recently completed projects in the southern part of the state, where more than 100 residential developments are in some stage of planning, from the permit stage to breaking ground, according to real-estate analysts.

Maritza Pena, a 33-year-old attorney in Miami, says she was surprised when she got a letter in February advising her that the development where she had agreed to purchase a two-bedroom apartment in 2004 for $579,980 had been cancelled. The developers of the proposed 49-story tower near Miami's Brickell Avenue had only seven months earlier hosted a cocktail party to celebrate the condominium's groundbreaking.

"They never hinted that something was wrong," says Ms. Pena, a first-time home buyer. "When I read the letter, it felt like I got punched in the stomach." Ms. Pena says the two-story unit she agreed to purchase on the 42nd floor was to have stainless-steel kitchen appliances, a marble bathtub and views of Biscayne Bay.

So she joined 58 fellow buyers who filed a lawsuit in April against the developer, South Bayshore Tower, in Miami-Dade Circuit Court, claiming breach of contract. The lawsuit seeks the gain they would have realized if the condos had been built plus the unconditional return of deposits with interest.

Lee Stapleton Milford, an attorney representing the developer, says it denies all of the claims cited in the lawsuit and says hurricane-related delays and rising construction costs led to the cancellation of the project, called 1390 Brickell Bay.

Some experts say the case may be tough to prove. Indeed, two of the three original claims in the lawsuit have been dismissed or withdrawn. And, as required in the purchasing agreement in the event that the project was canceled, the company has already returned buyers' deposits, in most cases 20% of the purchase price, with interest, according to Ms. Milford. The plaintiffs may also find it difficult proving future financial losses, because the condo wasn't built.

"The court looks for hard-and-fast evidence that you were harmed," says Georgette Chapman Phillips, chair of the real-estate department at the Wharton School of the University of Pennsylvania. "Lost profits are always hard to prove because they are speculative."







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By Robin Goldwyn Blumenthal

From Barron's Online

http://www.realestatejournal.com/

At the highest reaches of apartment heaven, where only the wealthiest of the wealthy can afford to perch, even the air has a different feel. There's something deliciously heady and almost unnatural in the new $5 million, $10 million and $20 million layouts that are proliferating in big cities across America. With their stately entryways, high ceilings and sweeping views of the world below, they exude a hushed grandeur.

Fittingly, these castles in the sky have been largely insulated from the harsh realities of the housing slowdown. The swelling ranks of millionaires and billionaires have been flocking to cities or trading up faster than developers can build the next gleaming, luxury apartment tower.

Empty-nest boomers are moving in from the suburbs in droves. Hedge-fund jockeys with city digs are on the prowl for still bigger and better ones. Newly minted magnates from overseas are snapping up second and third homes in U.S. metropolises, from Miami to San Francisco.

The result of all this: changing skylines, firmly rising prices and, for the well-funded buyer, a bewildering array of amenities. Would you care for a four-foot deep swimming pool in your apartment? How about a "mature pine forest" on the terrace? For the bookish apartment dweller, Manhattan's new 55 Wall Street comes with its own 20,000-volume private library.

Of course, regular old country estates aren't going begging. The market for houses of $5 million-plus also looks to be holding up better than most of the housing scene (see Luxury Addresses). Together, houses and apartments in this price range are among the few bright spots left on the national housing scene.

Just look at the numbers from Manhattan, America's apartment mecca. The average price per square foot for a condominium -- and most of the new buildings are condos -- continued a long climb in the third quarter of this year, to $1,171 per square foot, pushing the median price of a unit to more than $1 million. And that's just the median. It's increasingly common to see sales for $4,000, $5,000 and even $6,000 per square foot.

In the upper 10% of the New York market -- including cooperatives, long the city's mainstay -- the average sales price surged 18% in the third quarter from the level a year earlier, to $4.5 million, says Jonathan Miller, CEO of Miller Samuel, a New York real-estate appraisal firm.

With a dearth of available apartments in grand, prewar properties along Park and Fifth Avenues, buyers increasingly are clamoring to get into the many new steel-and-glass complexes going up all over the city. The $20 million-and-up segment is especially coveted -- "statement homes," as some call them. "Everyone is trying to find out where those are and 'How do I get my client into them,'" says Sharon Baum, director of the exclusive property division of the Corcoran property brokerage in New York.

Is it all getting out of hand? The luxury-apartment market may have become a tad -- dare we say it -- frothy. Brokers, developers and other pros suggest that price gains could start moderating around the country, as the supply of new buildings catches up with demand. By and large, however, the market is showing striking resilience and could continue to post healthy gains. It certainly doesn't look headed for the double-digit price declines some are expecting for the mainstream market in parts of the two coasts.

"From my vantage point the superluxury market is as strong as I've seen it," says developer William Zeckendorf, who, with his brother Arthur, is putting up one of the most sought-after luxury buildings in the city, 15 Central Park West. Nests in that 202-unit edifice are going for as much as $45 million -- to hedge-fund managers, Goldman Sachs honchos, the rock star Sting and others. (See Luxury Addresses.)

The reason for the market's health is simple: "There are very few great homes in this country, and an awful lot of people who've come into extraordinary wealth," Zeckendorf says. In fact, there are now some 35,000 people in North America whose net worth, excluding their primary residences, exceeds $30 million, according to a study by consultant Capgemini and Merrill Lynch.

The $5 million question is, what do you get for your $5 million? For that matter, is there really much difference between, say, a $15 million apartment and a $20 million model? In general, spreads in the $5 million-and-up category claim to have a sense of drama that normal apartments just can't match. Great light, distinctive architecture, and sprawling space are often part of the mix, brokers say. A striking Poggenpohl kitchen can only help the price, as can a good Japanese soaking tub.

To discover some finer distinctions, Barron's toured a group of recently built New York apartments ranging in price from $6.5 million to more than $20 million. Each had spectacular views, with even the least expensive, a three-bedroom loft on a lower floor at 165 Charles St., downtown, giving the sense of expansive space. It had floor-to-ceiling windows, an open kitchen and floor-to-ceiling glass doors in the master bathroom.

But other factors set the extremely expensive homes apart from the incredibly costly ones. As always in real estate, location was one. One East Side apartment, closer to midtown, comparable in size to the first one's 2,500 square feet, commands closer to $9 million.

That apartment, in a building called One Beacon Court, had some additional amenities, including a working fireplace. But what really stood out was the utter lack of noise. In the first apartment, you could discern the faint sound of -- gasp! -- cars whizzing by outside. Not so at the One Beacon Court unit. Thanks in large part to being on the 32nd floor, it was soundless. With its coffered 11-foot ceilings and expansive hallways, it hearkens back to an earlier age of civility and good breeding. But the neighbors in the building are thoroughly modern: The likes of singer Beyoncé Knowles and the Yankees' Johnny Damon can be spotted in the high-ceilinged elevator.

Go up a step to a 5,300-square-foot manse, on the 71st floor of the Time Warner Center, and the sense of drama only heightens. The entrance to this four-bedroom palace gives way to an 80-foot living room whose floor-to-ceiling vistas of Central Park, the Upper East Side and the George Washington Bridge stop you at every turn. And, spacious as the layout may be, a bathroom is never far away: There are five full bathrooms and two half-bathrooms -- well outnumbering the bedrooms.

In this sprawling condo, you are completely removed from the cares of the outside world. It only requires money: $21 million, plus a monthly carrying charge of $21,000.

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By Janet Morrissey

From The Wall Street Journal Online

Home builder D.R. Horton Inc. on Tuesday posted lower profit for its fiscal fourth quarter amid land-related writedowns of $199.2 million, but the results exceeded Wall Street's expectations.

The Fort Worth, Texas, company reported no signs of a rebound in the troubled housing market and offered no outlook for fiscal 2007. Market conditions remain "challenging" in the home-building industry, Donald Horton, the company's chairman, said in a statement. The company's orders fell 25%, which is better than many of its rivals.

Net income sank to $277.7 million, or 88 cents a share, in the three months ended Sept. 30, from $563.8 million, or $1.77 a share, a year earlier. Revenue fell 3.9% to $4.9 billion from $5.1 billion. The most recent quarter's results included a charge of 39 cents a share, related to writedowns on land, land options and land reacquisition costs. Still, the results exceeded Thomson First Call's estimate of 69 cents a share on revenue of $3.93 billion

The land writedowns were D.R. Horton's first. Other builders have been taking charges related to land for the past couple of quarters as deteriorating housing conditions and values have made certain land parcels no longer financially viable to build homes on.

Banc of America analyst Dan Oppenheim expects D.R. Horton to take more land-related writedowns in future quarters. He said D.R. Horton's results were better than expected because home closings held up relatively well and "represented 26 cents a share of upside." In the quarter, closings fell 7.3% to 17,261.

The higher-than-expected closings appeared to indicate that D.R. Horton was slightly more successful than other builders at stemming the tide of cancellations. This was partly offset by the company's gross profit margins, which came in about seven cents a share lighter than expected, he said.

Mr. Oppenheim said he wasn't surprised that the company didn't offer guidance for fiscal 2007, given the uncertain market conditions. "We expect that they will wait as long as possible before providing it due to the lack of visibility," he said. Mr. Oppenheim doesn't hold shares in D.R. Horton, but his firm has had an investment-banking relationship with the company in the past 12 months.

For all of fiscal 2006, earnings fell 16% to $1.23 billion, or $3.90 a share, from $1.47 billion, or $4.62 a share, for fiscal 2005. Revenue grew 8.6% to $15.1 billion from $13.9 billion.

In early trading, shares of D.R. Horton were up $1.31, or 5.9%, at $23.69 on the New York Stock Exchange.

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By Aaron Lucchetti

From The Wall Street Journal Online

Few businesses have installed as many visible security measures since the 2001 terrorist attacks as the New York Stock Exchange. The Big Board keeps several nearby streets closed to traffic and erected steel pylons around its perimeter. Visitors have to go through a gantlet of security measures to get into the building.

Now, one of its landlords says things have gotten out of hand.

NYSE Group Inc., the exchange's parent company, said in a regulatory filing this week that the landlord for one of its buildings is arguing the NYSE is in default of certain lease covenants because of its massive security effort. The security has made it difficult for tenants of Vornado Realty Trust, the landlord, and visitors to get into the building, according to people familiar with the matter. This could drive down the value of office space in the building, hurting Vornado.

New York-based Vornado, which leases the land under the building from an NYSE unit, is demanding the Big Board fix the situation by Dec. 15. NYSE said in the filing that it believes the claims are without merit. Vornado wouldn't comment on the terms of the lease.

The dispute illustrates the balancing act that firms face when juggling commerce with protecting employees. The NYSE, as one of the most well-known symbols of capitalism, has good reasons to be vigilant. The World Trade Center site is just blocks from its headquarters and after a terror scare in 2004, the Department of Homeland Security raised the terror-threat level for the New York financial sector, citing NYSE as one of a handful of possible terror targets. The exchange was also forced to close its popular visitors' gallery.

The NYSE beefed up security in 1993 when terrorists detonated a bomb in the World Trade Center, killing six and injuring more than 1,000. These days getting inside the NYSE makes airline security look downright easy.

The streets closest to the NYSE are closed to traffic, and steel blocks have been erected around its perimeter. The building is patrolled by gun-toting guards. NYSE guests have to wait outside until an escort from the building brings them in. Visitors are photographed, their bags searched and many guests are required to give personal information including Social Security numbers. Then, visitors are forced to walk through metal detectors. On rainy days, guests at the exchange's south entrance have been encouraged to stay dry in a local bank branch while waiting to get inside. One big issue for Vornado, according to a person familiar with the matter, is that guests are forced to wait outside, often for some time, something that is unusual at other buildings.

The added security has kept the exchange safe. At the same time, the bigger security footprint has caused some local businesses to suffer. In 2004, Wall Street Garage Parking Corp. sued the exchange over its decision with the city to block traffic near the exchange, scaring potential customers away from his operation. The NYSE prevailed in court, and the streets remain blocked.

Other local businesses have felt the hit. At Champs Gourmet Deli near the exchange, revenues are down 40% since 2001, according to Greg Signorile, who founded the place with his father and two brothers 17 years ago. He says the NYSE's security policies are "strict, but I don't blame them." The deli used to deliver Italian heroes and roast-beef sandwiches by the dozen to a holding room in the exchange, but that ended in 2001. Now traders come to him.

The issue at dispute with Vornado concerns 20 Broad Street, one of the four major buildings that the NYSE occupies in Lower Manhattan. The white-brick tower is next to the famous landmark building that the exchange moved into in 1903. It contains an annex to the Big Board's original trading floor and has office space above that primarily houses NYSE officials and private financial firms, many of whom rent from Vornado and do business at the NYSE. It is unknown if any firms have left because of the security issue.

It's not the first time that the intense security has caused issues for the NYSE. In 2003, several NYSE employees were fired for previous crimes when a new terror-inspired fingerprinting policy uncovered previously undisclosed crimes.

In April, the well-known Stock Exchange Luncheon Club, located above the trading floor shut down, in part because stepped-up security discouraged patrons.

And on a competitive note, the Big Board's electronic rivals often point to the security issue, saying it is just another reason why their system is better. In fact, the NYSE said this week it is planning to close 20% of its trading space by 2008, though it isn't in the Vornado building.

As for the NYSE, it still considers the floor an asset because its traders are often able to step into trading in dicey situations and bring order to the market.

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By Rex Nutting

From The Wall Street Journal Online

The housing market correction has further to run, with new-home construction expected to fall another 12% next year, a real estate industry group said Friday in an updated forecast for 2007.

While the market for existing homes will probably flatten out, the new-home market will probably continue to slow through next year, said David Lereah, chief economist for the National Association of Realtors.

Sales prices are expected to rise slightly. "Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Median existing-home prices are expected to rise 1.7% next year, while new-home prices are expected to rise 1.3%.

Housing starts will probably fall about 12% next year to 1.63 million after falling 11% this year, he said. Starts totaled 2.07 million in 2005.

The NAR forecast for housing starts for 2007 is close to the Blue Chip consensus forecast of 1.62 million. The Blue Chip forecast is derived from the forecasts of 54 economists surveyed by the publication Blue Chip Economic Indicators.

New-home sales will probably fall 8.7% next year to 975,000 after plunging about 17% this year, the realtors said.

Existing-home sales will probably fall 0.6% to 6.43 million next year after sinking 8.6% this year, he said, adding that sellers are becoming more realistic.

"We now have the most favorable market for home buyers in several years," Lereah said.

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